December rate hike signalled by ECB’s Nagel amid rising inflation risks

A December interest rate hike by the European Central Bank (ECB) “is very likely to be necessary.” That was the assessment on Tuesday of Joachim Nagel, President of the Bundesbank and a member of the ECB’s Governing Council.

With inflationary pressure “higher than expected in September,” Nagel said the deflationary scenario was deteriorating. He also stressed that the ECB can “and must prevent an energy price spike from causing broad-based inflation.”

What were Nagel’s key points?

December is very likely to require an interest rate hike

Price pressures exceed September expectations, bringing the adverse scenario closer

We have both the ability and the obligation to stop a surge in energy prices from triggering widespread inflation

I am confident that France will bring its budget problems under control

Monetary policy is not the tool for addressing this task

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

How Is the Euro Performing Today?

The Euro’s strongest performance today was against the Japanese Yen. Today’s percentage movements in the Euro (EUR) against the major currencies listed are set out in the table below.

	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
USD		-0.01%	-0.08%	0.46%	0.06%	0.37%	0.02%	0.31%
EUR	0.01%		-0.06%	0.46%	0.07%	0.40%	0.03%	0.32%
GBP	0.08%	0.06%		0.53%	0.14%	0.45%	0.07%	0.38%
JPY	-0.46%	-0.46%	-0.53%		-0.39%	-0.09%	-0.43%	-0.14%
CAD	-0.06%	-0.07%	-0.14%	0.39%		0.31%	-0.04%	0.25%
AUD	-0.37%	-0.40%	-0.45%	0.09%	-0.31%		-0.35%	-0.07%
NZD	-0.02%	-0.03%	-0.07%	0.43%	0.04%	0.35%		0.29%
CHF	-0.31%	-0.32%	-0.38%	0.14%	-0.25%	0.07%	-0.29%

To read the heat map of percentage movements between major currencies, select the base currency in the left-hand column and the quote currency in the top row. For instance, choosing the Euro on the left and following its row across to the US Dollar gives the percentage change for EUR (base)/USD (quote) in the corresponding cell.

ECB: Common Questions Answered

How does the ECB’s role shape the Euro?

Interest rates and monetary policy across the Eurozone are managed by the European Central Bank (ECB), the region’s reserve bank, based in Frankfurt, Germany. Maintaining price stability is the ECB’s central mandate, which means keeping inflation near 2%. Adjustments to interest rates are its main means of meeting that objective. Higher interest rates relative to those elsewhere generally support a stronger Euro, while the reverse also holds. Monetary policy is decided by the ECB Governing Council at eight meetings each year. The decision-makers comprise the heads of the Eurozone’s national banks and six permanent members, among them ECB President Christine Lagarde.

How does Quantitative Easing (QE) work, and what does it mean for the Euro?

A weaker Euro is the usual outcome of Quantitative Easing (QE), a policy tool the European Central Bank can deploy in extreme circumstances. Under QE, the ECB prints Euros to purchase assets from banks and other financial institutions, typically government or corporate bonds. When interest rate cuts alone are unlikely to deliver price stability, QE serves as a last resort. The ECB deployed it during the Great Financial Crisis in 2009-11, again in 2015 as inflation stayed persistently low, and during the COVID pandemic.

Why does Quantitative tightening (QT) usually support the Euro?

Usually supportive of the Euro, or bullish for the currency, Quantitative tightening (QT) reverses QE. It follows QE once an economic recovery is under way and inflation begins to climb. Under QE, the European Central Bank (ECB) supplies liquidity to financial institutions by purchasing government and corporate bonds from them. Under QT, by contrast, it ceases further bond purchases and no longer reinvests the principal repaid as bonds in its existing portfolio mature.